Starting balance for non-employee COBRA beneficiaries

[JDuns]

Assume that married Employee signs up for a health care FSA and elects $2000. Before submitting any claims, Employee and Spouse divorce. If spouse elects COBRA for the FSA, what is her starting balance?

I know that the preamble to the Final COBRA regs that took effect 1/1/2001 (54.4980B-5) indicates:

The one addition is a clarification that, to the extent a health FSA is obligated to make COBRA continuation coverage available to a qualified beneficiary, all the general COBRA continuation coverage rules apply in the same way that they apply to coverage under other group health plans, including the rule for how plan limits on coverage apply to someone on COBRA continuation coverage. This addition was made in response to the request of one commenter and numerous inquiries about how the annual election of a certain dollar amount by an employee under a health FSA applies once there is a qualifying event.

If a former employee electing COBRA would start with the account balance ($2000), it seems that this implies that Spouse should also start with $2000 (putting the employer at risk for $4000 in claims for a $2000 election).

I have never had a spouse or no-longer dependent child apply for COBRA coverage for the FSA so never thought about it but now that I have I feel compelled to find an answer.

[papogi]

The IRS allows two interpretations. You describe one above, where each person goes off with a $2,000 balance. This is the more typical approach, since it is simpler administratively than the alternative. The second alternative is to look at the claims experience of each person, and create a new balance for each person based on the dollars reimbursed already, and are attributable to that person. In your case, there are no claims, yet, so it would be $2,000 each.